Local Effects of Global Capital Flows: A China Shock in the U.S. Housing Market

• Published in: The Review of financial studies Vol. 37; no. 3; pp. 761 - 801
• Main Authors: Li, Zhimin, Shen, Leslie Sheng, Zhang, Calvin
• Format: Journal Article
• Language: English
• Published: Oxford University Press 01-03-2024
• Subjects: R21; J21; E20; F38; F21
• ISSN: 0893-9454; 1465-7368
• DOI: 10.1093/rfs/hhad067

Abstract
This paper studies the real effects of foreign real estate capital inflows. Using transaction-level data, we document (i) a “China shock” in the U.S. housing market characterized by surging foreign Chinese housing purchases after 2008, and (ii) “home bias” in these purchases, as they concentrate in neighborhoods historically populated by ethnic Chinese. Exploiting their temporal and spatial variation, we find that these capital inflows raise local employment, with the effect transmitted through a housing net worth channel. However, they displace local lower-income residents. Our results show that real estate capital inflows can both stimulate the real economy and induce gentrification.